Data continues to reflect the weak pace of credit growth in 2017
Dubai: Going forward, analysts expect that the Fed rate hikes will be the main driver of EIBOR [Emirates Interbank Offered rates] in 2018 with banking sector liquidity likely to remain comfortable.
“Backed by a strong job market, the Fed is expected to continue with further rate increases next year, in a bid to return to a normalised interest rate scenario. With three more hikes expected in the US, banks in the UAE will need to carefully consider the impact when advancing credit to local borrowers given the policy changes planned for the next year,” said Emilio Pera, Partner and Head of Financial Services at KPMG Lower Gulf.
While the UAE’s gross credit growth picked up in October, driven by a rise in GRE borrowing, rising 0.3 per cent month on month, the fastest pace of monthly expansion since March 2017, it remained below the 2016 average of 0.5 per cent.
Although there were some signs of a moderate uptick in private sector loan growth with both the corporate and retail sectors in the second half of 2017, the yearly data continues to reflect the weak pace of credit growth in 2017 with total gross loans up just 0.9 per cent and the private sector up 0.5 per cent.
“With the implementation of VAT scheduled for next month, it will be interesting to see how borrowers react to simultaneously rising costs. However, we believe that the local banks, which use their standard variables rates to price a new transaction, would have factored in some of the impact of the rate hike which was widely expected,” said Pera.